Staples Earnings Take Back Seat to Office Depot Acquisition
Staples reported mixed fourth-quarter and full-year 2014 results before markets opened Friday morning.
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Staples Inc. (NASDAQ: SPLS) reported fourth-quarter and full-year 2014 results before markets opened Friday. For the quarter, the office supplies retailer posted adjusted diluted earnings per share (EPS) of $0.31 and $5.66 billion in revenues. In the same period a year ago, Staples reported EPS of $0.33 on revenue of $5.87 billion. Fourth-quarter results compare also to the Thomson Reuters consensus estimates for EPS of $0.30 and $5.76 billion in revenue.
On a GAAP basis, Staples posted a net loss of $260 million ($0.41 per share) in the fourth quarter, due primarily to a $410 million goodwill impairment in Australia, China and South America and $74 million in pretax charges for restructuring and other items.
For the full year, adjusted EPS totaled $0.96, compared with EPS of $1.16 in 2013. Revenues totaled $22.49 billion in 2014, compared with $23.11 billion in 2014. Analysts were looking for EPS of $0.96 on revenues of $22.57 billion.
In its outlook statement for the first quarter of 2015, Staples said it expects sales to decrease by 5% compared with the first quarter of 2014. Adjusted EPS is forecast in a range of $0.16 to $0.18 for the quarter. Consensus estimates call for EPS of $0.17 and revenues of $5.53 billion. The revenue expectation is about 2% below last year’s first quarter revenues of $5.65 billion.
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Guidance does not include any costs related to Staples’ acquisition of Office Depot. Staples expects to take pretax charges of $15 million to $40 million for restructuring and other related activities in the first quarter.
Staples reported that it has closed 169 stores of a planned 225 closures in North America by the end of 2015.
When activist investor Starboard Value released a statement following the announcement that Staples was acquiring Office Depot, the private equity firm said that management’s current cost-benefit assessment of post-merger synergies is conservative. Starboard believes those synergies could be over $2 billion, and Staples could ultimately be worth $32 to $37 per share once the Office Depot acquisition has closed and once those synergies can be realized.
Staples shares have risen more than 50% from its 12-month lows. Office Depot is now up close to 150% from its lows. Is it reasonable to expect another doubling of the share price for the combined company? It seems more than aggressive to us.
Staples — and Starboard — have put all their eggs in the acquisition basket. If it does not work out, there is no plan B.
Staples shares traded up about 0.6% in Friday’s premarket to $16.60, in a 52-week range of $10.70 to $19.40. Thomson Reuters had a consensus analyst price target of around $17.40 before the results were announced.
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
